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Canada's net foreign debt rose by $40.6 billion to $193.8 billion at the end of the first quarter. This reflected the downward revaluation effect on foreign assets and liabilities due to the appreciation of the Canadian dollar, as well as the continued, but reduced, quarterly current account deficit and resulting smaller net inflow of funds into the Canadian economy. Net foreign debt has increased over the past five quarters after a long period of overall decline in this aggregate.

International assets decline as Canadian dollar appreciates and international liabilities rise

Canada's international assets declined 1.1% to $1,399.3 billion during the first quarter. The downward revaluation effect of a rising dollar on the value of Canadian foreign currency denominated assets was $51.1 billion. This effect more than offset the addition of $41.5 billion in Canadian investments abroad in the quarter. The Canadian dollar appreciated against all major foreign currencies, up 3.5% against the US dollar, 4.0% against the Japanese yen, 9.7% on the Euro and 10.2% on the British pound.

Note to readers

The international investment position presents the value and composition of Canada's foreign assets and liabilities to the rest of the world. Canada's net international investment position is the difference between these foreign assets and liabilities. The excess of international liabilities over assets can be referred to as Canada's net foreign debt; The excess of international assets over liabilities can be referred to as Canada's net foreign assets. The valuation of the assets and liabilities in the international investment position are measured at book value, unless otherwise stated. Book value represents the value of assets and liabilities recorded in the books of the enterprise in which the investment is made.

Currency valuation

The value of assets and liabilities denominated in foreign currency are converted to Canadian dollars at the end of each period for which a balance sheet is calculated. Most of Canada's foreign assets are denominated in foreign currencies while less than half of our international liabilities are in foreign currencies. When the Canadian dollar is appreciating in value, the restatement of the value of these assets and liabilities in Canadian dollars lowers the recorded value. The opposite is true when the dollar is depreciating.

International liabilities increased 1.6% to $1,593.1 billion. Non-residents invested a further $51.8 billion in Canada during the quarter, a greater pace than in the previous quarter. This activity was concentrated in inward direct investment and Canadian bonds. However, the appreciation of the Canadian dollar moderated this increase with a $25.2 billion downward revaluation of foreign currency denominated liabilities.

Net direct investment asset declines sharply

Canada's net asset position on direct investment narrowed further to $4.7 billion at the end of the first quarter. This represented a significant $39.2 billion decline in the difference between the levels of Canadian direct investment abroad and foreign direct investment in Canada. The value of Canadian direct investment abroad was down $25.9 billion, led by the downward revaluation from the appreciation of the Canadian dollar (-$26.7 billion) and marginal investment outflows. At the same time, foreign direct investment in Canada was up, reflecting relatively strong investment inflows at $15.2 billion.

Canada's net debt on portfolio securities edges up

The value of Canadian holdings of foreign securities fell by $11.1 billion in the first quarter. The downward revaluation effect of the appreciation of the Canadian dollar more than offset investment flows of $5.2 billion in the quarter, mainly in equities.

Non-resident holdings of Canadian securities were up slightly in the quarter. Their investment in Canadian securities, of $18.2 billion in the first quarter, was mostly offset by a $13.9 billion currency revaluation decrease in foreign currency denominated liabilities. There was continued strong investment in Canadian bond liabilities ($19.1 billion). This activity was moderated by marginal divestment in Canadian equities and money market securities.

Canada's overall net international investment position can also be calculated with portfolio assets and liabilities of tradable securities valued at market prices. By this measure, Canada's net foreign debt rose to $166.6 billion at the end of the first quarter. This increase was moderated slightly by equity market fluctuations, as global markets fared better than Canadian markets in the quarter. As a result, prices of foreign stocks held by Canadians (+4.2%) increased more than prices of Canadian corporate shares held by non-residents (+2.5%). This reflected the fourth consecutive quarter of gains in Canadian and global equity markets.